The annual survey of more than 500 U.S. executives reported that 86 percent of respondents are tempering their expectations for economic growth due to continued uncertainty.

“Midmarket executives are acknowledging the challenges posed by an economy that is growing more slowly than in most recent recoveries,” says Tom McGee, a national managing partner with Deloitte Growth Enterprise Services, Deloitte LLP.

Survey respondents were senior executives at companies with annual revenues between $50 million and $1 billion. The Deloitte survey was conducted by OnResearch, a market research firm.

Many respondents expressed concerns about the broader U.S. economy. In the 2011 survey, the median growth forecast was between 2 and 3.5 percent, while this year’s median forecast is from 0 to 2 percent. Although views on the broader economy are down, respondents were more optimistic about their own company’s prospects. In terms of positioning themselves for growth, they are raising their cash balances, bolstering their balance sheets, looking at acquisitions and finding ways to grow.

When asked about obstacles to U.S. economic growth, respondents cited two factors that were not among the top five last year: the housing market and the European debt crisis. Political uncertainty during a presidential election year is an additional factor. Forty-four percent of survey respondents said that political uncertainty in anticipation of the U.S. presidential election will have a negative effect on their businesses.

“It would not be surprising to see companies wait on the sidelines until a clearer picture emerges and they can move forward with greater certainty, and perhaps less risk,” says Mr. McGee. “However, midmarket companies recognize that inaction can increase risk, and survey respondents indicated they are taking action and making business decisions despite the uncertain environment.”

Moving Forward During Uncertain Times

To prepare for continuing, uneven market conditions, midmarket executives are taking careful actions in three key areas in 2012: talent, finance and technology.

1. Talent. There is a growing consensus on the importance of leveraging existing talent within an organization, rather than dramatically increasing hiring. Overall, fewer companies expect to hire new employees. This tendency is particularly pronounced among family-owned firms, but more than half of the respondents indicate that the size of the workforce will be unchanged.

The watchword of 2012 is stability. The percentage of executives planning to expand their domestic workforce dropped to 42 percent from 48 percent in 2011. Despite high unemployment, executives acknowledged that it is difficult to find certain categories of skilled talent, especially in engineering, healthcare and information technology (IT). More companies (51 percent) plan to invest in their existing workforce through training compared to last year (34 percent). Better training may mitigate the need for new hiring, and is consistent with a more cautious approach to increasing the workforce. Additionally, fewer firms plan to increase the number of part-time workers (only 13 percent compared with 18 percent in 2011).

2. Financing. Balance sheets are healthier than they were one year ago, with 35 percent of respondents predicting higher cash balances and another 55 percent predicting cash balances to remain stable in the coming year.

While 90 percent of the respondents expect capital investment to grow or at least remain stable in 2012, a substantially larger number of companies do not plan to secure financing this year (27 percent versus 14 percent in 2011). Companies appear to be more prudent by strengthening their balance sheets to take advantage of opportunities than they were in recent years.

A majority of respondents to the 2012 survey indicates no change in the ability to obtain financing. These results hold for every financing vehicle, including leasing, asset-based and secured loans and private equity. For those who choose to secure financing, the largest number of respondents also indicated no change in the cost of credit, again in every financing class.

This year’s survey also indicates the potential for more merger activity. When mid-market executives were asked if they were “very likely” to be involved in a merger or acquisition in 2012, 18 percent responded “yes” as an acquirer (up from 11 percent last year) and 6 percent responded ‘yes’ as a target (up from 3 percent last year). Respondents also expressed more interest in private equity investors as counterparties in mergers and acquisitions. Only a handful of respondents expressed an interest in a public offering in the near-term, while 7 percent expect to go public in the next year and another 6% expect to go public more than a year out.

3. Technology. Companies recognize the growing importance of technology. They continue to prioritize automation of business processes, data analytics and business intelligence to increase productivity and indicate these as areas where they are most likely to make investments in 2012. Interestingly, there seems to be a greater recognition of the benefits of cloud computing. In our September 2011 survey, it was recognized as a distant fourth as a means to increase productivity. In this survey, cloud computing nearly equaled data analytics and business intelligence in terms of likely investments.

Other technology findings showed that business process automation remains the top investment pick to increase productivity for 46 percent of the respondents (down from 52 percent last year). Forty percent of respondents—up from 29 percent last year—recognized cloud computing and Software-as-a-Service as one of the top three technology investments for 2012.

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